Russia Intensifies Control Over Northern Sea Route Shipping, But Suez May Still Win

John
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western journalist to direct his own bureau independent
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As larger cargo volumes and more international vessels move
through Arctic waters, or the Northern Sea Route as the passage
is generally called in Russian (SMP is the cyrillic acronym, NSR
in English), the Kremlin’s strategy is to fund the construction
of the most powerful nuclear icebreakers in the world, and ensure
they dominate future navigation and convoys. These vessels are
very expensive to build and to operate, however. So costly that
just a few days of extra time navigating the icepack could
eliminate the cost advantage which the Northern Sea Route is
currently advertising over the Suez Canal alternative.

Because of the lack of ports along the Arctic shores, and tight
beam and draught limits for vessels to navigate the eastern
Laptev and Sannikov narrows, ten new Russian navigational and
emergency centres will be installed over the next decade to bring
the new traffic under Russian supervision and regulation. But
there are technical problems with the maintenance of hundreds of
strontium-90 powered navigational beacons installed along the
coast line. Customs, coast guard, and special forces units are
also being reinforced and tested to give the Russian regulatory
authorities teeth to react to what the Kremlin considers foreign
territorial or commercial threats. Ironically, according to one
Moscow source, the satellite imaging used by the Russians to
identify and navigate around thick ice concentrations is
Canadian, not Russian.

Decrees issued by former President Dmitry Medvedev and President
Vladimir Putin have ordered state funding for three new
nuclear-powered icebreakers, built according to new designs by
the Iceberg Bureau of St. Petersburg. The first, already under
way at Baltic Shipyard in St. Petersburg, will be ready by 2017;
the second and third by 2020. The federal ministry of Finance is
planning to spend Rb100 billion ($3.1 billion).

After the US and Germany tried, then abandoned their efforts to
create comparable nuclear-powered icebreakers, Stanislaus
Golovinsky says Russia now has an “absolute monopoly” on this
segment of shipbuilding and operation; Golovinsky is Deputy
Director General of Rosatomflot, the state agency in charge of
the new icebreaker fleet. Japan operates the nuclear-powered
Mutsu icebreaker, but it is no more than a research vessel. China
tested the route with the Xue Long, a diesel-powered icebreaker,
a year ago.

It wasn’t until 2008 that Rosatomflot was put in charge of the
nuclear-power icebreakers, after more than a decade of
semi-commercial icebreaking by the Murmansk Shipping Company.

The new Russian vessels will replace the five icebreakers
currently available for the Northern Sea Route. Unlike diesel
powered vessels, however, the nuclear ones aren’t limited in
range or operation by the need to make port for refueling.
According to a recent study by the Arctic Institute, an
American-backed think-tank without Russian participation, “the
ice-free period along the Arctic’s main shipping routes is
expected to increase from around 30 days in 2010 to more than 120
days by the middle of the century.”

Not since Operation Wunderland of 1942, a German Navy operation
to attack and sink Russian convoys moving east and westward
through the Northern Sea Route, has there been so much planned
vessel movement through the Arctic seas. The perception of
potentially hostile or competitive foreign threats in the region
spurred the Kremlin and the State Duma to enact new legislation
last year, establishing the Northern Sea Route Administration,
and following with new regulations and new charges covering
foreign vessel navigation, vessel to shore communication, weather
and hydrological services, icebreaker operations, rescue and
spill response.

The Northern Sea Route Administration opened for business in
Moscow in March of this year. Its new rules require vessels
applying for permits to transit the route to accept Russian
icebreaker assistance, which is determined by whether ice
conditions at voyage time are judged to be heavy, medium or
light.

Russian maritime statistics indicate that in 2012 46 vessels
sailed through the Northern Sea Route. They carried about 2
million tonnes of cargo; this compares with 7 million tonnes in
1987, the peak volume during the Soviet period. There was almost
nothing when Boris Yeltsin took over the presidency in the 1990s.
Slightly more than half these vessels sailed eastwards compared
to those moving in the opposite direction. Petroleum product
cargoes still dominate, compared to bulk iron-ore, fish or
ballast. For the first time last year cargoes of liquefied
natural gas (LNG) from Norway were transported eastwards, while
one Norwegian product tanker set the record at 66,462 tonnes of
jet fuel on the route eastwards from South Korea to Finland. On
the westwards route, the Dynagas gas carrier,Ob River, delivered
a record 84,682 tonnes of LNG to Tobata, in Japan, in May 2012.

It is worth noting for comparison that in 2012 through the Suez
Canal 17,225 vessels made the passage, carrying 928.5 million tonnes of cargo.

The first Chinese cargo vessel to transport containerized cargo
westwards through the Northern Sea Route is currently under way;
Cosco’s Yong Sheng is enroute from Dalian to Rotterdam between
August 27 and September 11.

The latest data from the Northern Sea Route Administration
indicate that as of August 23, this year, the number of vessels
making the complete transit voyage was only 16, carrying 433,000
tonnes of cargo – significantly less than a year ago. Vessel
applications for operating permits in the area currently number
547; permits granted, 467, indicating a refusal rate of 15%.

When Novatek’s LNG refinery starts operating on the Yamal
peninsula in 2017, and LNG shipments commence eastwards and
westwards from the new Kara Sea port of Sabetta, a new fleet of
16 LNG carriers will depend on the Russian icebreakers to move
more than 16 million tonnes per annum of LNG; the tankers will
each have a rated capacity of 150,000 tonnes.

Russian experts told Fairplay there may be as much as a billion
tonnes of fuel to be lifted and shipped in the Arctic region –
without Russian icebreakers, though, it is bound to stay where it
is. The Russian government agency in charge of Arctic
emergencies, including oil spills, is called Gosmorspassluzhba
(“State Marine Emergency Service”). Deputy director Andrei
Haustov told Fairplay the agency doesn’t monitor oil spill risks,
but is called into action when they happen. Seismic risks, he
added, also threaten to breach oil and gas pipelines which are
being laid on the Arctic seabed. At a conference last month
[August] he acknowledged that his agency needed to “strengthen
preparedness to deal with oil spills both from the Ministry of
Transport of Russia, as well as [from] oil companies engaged in
exploration, extraction, processing, transportation and storage
of oil, in terms of whether they have enough equipment for oil
spill response.”

Vladimir Chuprov, head of the Russian Greenpeace energy
programme, told Fairplay there is a conflict between the oil and
gas companies and the Northern Sea Route Administration and
Atomflot. The companies want to keep the price of the nuclear
icebreakers down to a minimum, and pay only for the time the
vessels are in use. By contrast, the route and fleet bureaucrats
who are starved of state budget money want to lift the
icebreaker, navigation, and security charges, adding possibly an
all-year-round access fee for operators, as is the practice in
Scandinavia.

“On the one hand, there are the oil and gas projects for which
this costly state presence has been created,” Chuprov says. “And
on the other, there are the commercial interests. They contradict
each other, and for the time being the oil and gas interests are
prevailing.”

In August, the Northern Sea Route Administration refused to issue
a transit permit for the Greenpeace vessel, icebreaker Arctic
Sunrise, on grounds that it lacked the required ice
classification. According to Greenpeace, the regulations are
being manipulated to prevent Greenpeace’s protest against Russian
and other oil company exploration in Arctic waters. A Greenpeace
statement claims: “None of the six oil exploration vessels
operating for Rosneft and ExxonMobil in the area has an ice
classification as high as the Arctic Sunrise. More than 400
vessels have been granted access to the Northern Sea Route this
year, many of them with an inferior classification to that of the
Arctic Sunrise, which is classed as an icebreaker.”

Greenpeace is considering charging the Russian regulators with
violating “Russia’s obligation under Article 58 of the Law of the
Sea Convention to allow foreign vessels freedom of navigation in
its Exclusive Economic Zone, and its obligations under Articles
10 and 11 of the European Convention on Human Rights to refrain
from unjustified interferences with freedom of expression and
peaceful assembly.” The Russian Coast Guard has claimed the right
to impose a 4-mile exclusion zone around a Rosneft oil
exploration vessel to prevent an approach by the Arctic Sunrise.

“The environmental standards that exist today in Russia are
catastrophically low,” Chuprov says for Greenpeace. “That is,
they do not encourage companies to behave in what is called an
‘environmentally friendly’ fashion.”

Chuprov also warns that Russia is running a much bigger risk in
the Arctic than there will be oil profits to justify the state
outlays and subsidies. According to Greenpeace calculations, by
the year 2025 the Russian government expects that the Arctic
shelf projects now in planning will be able to produce 13.5
million tonnes of oil. But in terms of aggregate Russian oil
production elsewhere on the continent, that would amount to just
3%. According to Chuprov, there is a serious risk that for all of
the special subsidies and tax incentives to encourage Arctic
shelf oil projects, the price of oil may not justify the state
budget outlays and tax losses.

And if that’s the risk facing the oil and gas companies, all the
other costs of the Northern Sea Route may turn out to be too
high, too uncertain, too risky after all.

Read the original article on Dances With Bears. John Helmer is the longest continuously serving foreign correspondent in Russia, and the only western journalist to direct his own bureau independent of single national or commercial ties. Copyright 2013.